The Torment of Being Under Criminal Investigation

Alone on a jettyMany of my white-collar clients are startled to learn how long a government investigation and criminal trial take. They think it will last a year, maybe 14 months. Instead, it can take years.

Delay can work to my clients’ advantage, allowing us time to review documents, find witnesses, develop legal arguments and strategize a trial defense. But it can also work a peculiar form of quiet, long-running torment on my clients as they wait for justice.

A recent DOJ press release about the guilty plea of the CFO of a Texas medical device company has me thinking about this phenomenon. Michael Gluk pleaded guilty to one count of conspiracy to commit securities and wire fraud. His case began many years earlier.

In one of the first posts on this blog in July 2013, I wrote about the charges against a company called ArthroCare. Mr. Gluk and the former CEO Michael Baker had been charged with securities fraud for events that happened between 2005 and 2008.

Now, twelve years after the supposed fraud began and four years after the indictment, Mr. Gluk has put his case (mostly) to rest.

The Initial Indictment and Trial

The indictment alleged that Mr. Baker and Mr. Gluk inflated ArthroCare’s earnings. The company would send products to its distributors based on not on how much the distributors had ordered but on how much the company need to ship in order to meet analyst expectations. This resulted in tens of millions of dollars in fake sales and inflated public earnings.

In the initial case, Mr. Baker and Mr. Gluk were found guilty at trial. However, on appeal the Fifth Circuit reversed based on certain evidentiary rulings at trial. I wrote about the big win on appeal here.

The Government’s Second Attempt

The government did not give up after losing on appeal. It continued to go after Mr. Gluk, eventually filing a superseding information in the case, alleging a single count of conspiracy to commit wire fraud and securities fraud.

Usually when the government proceeds by information rather than indictment, it means that the defendant has agreed to plead guilty and waive indictment by a grand jury. It’s a simpler way to bring the charges without having to go to the trouble of convening the grand jury.

According to the DOJ’s press release:

As part of his guilty plea, Gluk admitted that he conspired with others to falsely inflate ArthroCare’s sales and revenue through a series of end of quarter transactions involving ArthroCare’s distributors. He further admitted that he and other co-conspirators cause ArthroCare to file a form 10-K for 2007 and form 10-Q for the first quarter of 2008 with the U.S. Securities and Exchange Commission (SEC) and materially misstated ArthroCare’s quarterly and annual sales, revenues, expenses and earnings. As part of the plea, Gluk further admitted that he provided false testimony in proceedings before the SEC in federal district court.

Mr. Gluk also admitted that DiscoCare, the company that ArthroCare eventually acquired as part of the scheme, agree to accept shipment of approximately $37 million of product in exchange for upfront cash commissions and other preferential treatment.

The case against Mr. Gluk has one final and very important step to go: sentencing. Sentencing has not yet been scheduled.  I’m sure his lawyers are working hard to prepare the sentencing memo to respond to the government’s proposed sentence. (The plea agreement is not available on PACER so I don’t know the agreed-to loss amount or guidelines calculation.)

The Torment of a Long Investigation

This has been a long case for Mr. Gluk. There have been low points and high points, from losing at trial to winning on appeal. The process of pleading guilty after so many years of fighting the charges is no doubt painful.

Mr. Gluk’s lawyers had a chance to see the government’s evidence at trial and to evaluate their shot at winning the second time around. That calculation is not an easy one for anyone to make. Sometimes the best bet is to plead guilty.

I’ve heard some lawyers say they never encourage a client to plead guilty. That makes no sense to me. Of course, my preference is to fight. (And fight and fight and fight.) But there are times when losing at trial is a near certainty. Knowing that the prosecutors will load up the charges if you refuse to plead guilty and knowing that the sentence will be harsher than during the plea deal—well, a smart and ethical lawyer will advise her client to plead guilty.

My job is not to advise my client about the course that serves my ego but the one that is best for the client in the end.

I don’t know Mr. Gluk, of course. But I’ve worked with enough clients who have gone through what he’s going through to have a sense of it. Being under indictment wreaks havoc on everything you do and every part of your life.

If you are a government employee, you will be placed on administrative leave. If you work for a private company, you may lose your job. Your friends may not return calls or you may find out that they have been witnesses against you in the grand jury. Your family life suffers thanks to the stress of being under investigation for years.

You think about the very public nature of the trial and the suddenly very real possibility of prison time. It can be lonely. Very, very lonely.

White-collar criminal cases take a long time, sometimes because of intentional delay by the defendant, but often because of the sheer complexity of the investigation. They are not easy cases to prove for the government, because intent is usually the contested element.

As defense lawyers, we should be open with our clients about how hard the process will be and all of the painful collateral harm to one’s personal and professional life.

I’m sure it’s cold comfort, but congratulations to Mr. Gluk. He was originally sentenced to 10 years in prison, so if the plea deal results in a lower sentence than that, then the battle was worthwhile.

His co-defendant, Mr. Baker, continues the fight. Mr. Gluk’s plea deal raises a new challenge for him since it seems certain that Mr. Gluk will have agreed to cooperate with the government in return for the plea deal. They’ve been in the trenches together for years but now the dynamic has changed.

This entry was posted in Health care fraud, Plea Agreement, Uncategorized. Bookmark the permalink.

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